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Before billionaire H. Ty Warner got off with probation and community service for evading taxes on $25 million of income from secret Swiss bank accounts, lawyers for the 69-year-old Beanie Babies creator made much of the fact that he had tried to “rectify his mistake” by applying to the Internal Revenue Service’s voluntary disclosure/criminal amnesty program in September 2009and had been rejected.

What hasn’t been previously reported, however, is that Warner later fought handing over records of his foreign bank accounts to a grand jury in a battle that went all the way up to the U.S. Supreme Court. Last May, the high court declined to hear Warner’s anonymous appeal in a case coincidentally captioned T.W. v United States of America. (The T.W. in the case stands for Target Witness, not Ty Warner.)

Last September, in a deal with the U.S. Attorney for Northern Illinois, Warner pleaded guilty to one felony count of tax evasion and agreed to pay a $53 million fine for failing to file required Foreign Bank Account Reports (FBARs)---a penalty that equals 50% of the maximum $106 million he had in accounts at UBS AG and Zuercher Kantonalbank during the 12 years he failed to report the accounts or the income they generated. According to the U.S. Sentencing Commission Guidelines, which ratchet up sentences with the dollar value of a white collar crime, Warner should have been sentenced to 46 to 57 months of jail time –and that’s even after the credit he got for pleading guilty, or in sentencing lingo, “acceptance of responsibility.”

Prosecutors had pushed for Warner to get at least a year in prison. Now U.S. Attorney for Northern Illinois Zachary T. Fardon is seeking Department of Justice approval to appeal Warner’s no-jail sentence--- a rare appeal that must be approved by the U.S. Solicitor General. In their original sentencing memo calling for him to do time, prosecutors didn’t (and because of grand jury secrecy couldn’t) mention the documents fight, but did argue that Warner’s “efforts to date fall well short of the kind of disclosure that meaningfully mitigates the seriousness of his offense.” Prosecutors pointed out, for example, that Warner has never revealed the source of the funds he put in UBS in 1996, leaving it unclear if the cash deposited in Switzerland had been previously taxed. (If it hadn’t, then Warner evaded tax on a lot more than the $25 million of income he admitted to.) “The glaring omission of an honest explanation for the crime seems to be a continuation of his Swiss bank scheme: secretive and calculating,’’ they wrote.

The prosecutors’ memo also contrasted Warner’s conduct with that of Mary Estelle Curran, an 80-year-old Palm Beach Florida widow who, one month after being turned down for the same criminal amnesty program, filed amended returns and paid all outstanding tax due on $40 million in offshore accounts she had inherited from her husband, who had himself inherited the money from an aunt living in Monte Carlo. Whereas Curran made a full disclosure, cooperated with prosecutors and paid up with no guarantee she wouldn’t be criminally charged, Warner didn’t start paying up until 2014---after his plea deal, prosecutors said. (The government did not oppose probation for Curran, but the sentencing judge, dismayed that she had been prosecuted at all, revoked her probation after just a few seconds and suggested that she seek a presidential pardon.)

Since March 2009, about 40,000 U.S. taxpayers have entered the IRS Offshore Voluntary Disclosure Program, which allows those with secret accounts to escape criminal prosecution in return for the payment of stiff penalties and any back taxes owed, as well as full disclosure of the source of money in their secret accounts, and information on the offshore promoters and bankers they worked with. Under long time IRS policy, however, a taxpayer isn’t eligible for amnesty if the IRS or DOJ is already investigating him or has his name (say from a list handed over by a bank, promoter, or informant). Curran’s name was one of 285 that UBS turned over to the U.S. on Feb. 19, 2009, in a deal to avoid its own criminal prosecution. Prosecutors haven’t specified how they learned about Warner, but say it was in 2008.

Warner’s attorneys say he didn’t know investigators already had his name when he applied for amnesty in September 2009. But prosecutors argue that Warner should get no extra consideration for attempting to enter the program, since by the time he applied, he was “aware that disclosure of his account was probable.” That’s because his Swiss UBS banker turned independent asset manager, Hansreudi Schumacher, had been indicted and another Schumacher client, toy manufacturer Jeffrey Chernick, had pleaded guilty to hiding $8 million offshore. Chernick’s July 2009 plea was widely reported, along with the fact that he was telling prosecutors all he knew. (Despite his cooperation, and the fact that he approached the government before February 2009, Chernick still got three months in jail. His offshore stash came from unreported payments Asian toy manufacturers.)

Deciding whether to appeal Warner’s sentence could be a difficult call for the Justice Department. The downward departure from guidelines in Warner’s case was particularly dramatic, but the government hasn’t won an appeal of a below-guidelines sentence for a tax crime since the Supreme Court ruled that sentencing guidelines aren’t binding on sentencing judges. “The Solicitor General’s office is going to have to balance the need to try to overturn a decision that it believes sends the wrong message for people committing tax crimes against the potential downside for having a circuit (appeals) court affirm that sentence,’’ observed Nathan J. Hochman, a former Assistant Attorney General for the Tax Division who argued three losing tax sentence appeals for the government. (Hochman, now co-chair of Bingham McCutchen’s White Collar Investigations and Enforcement Group, represented Curran at sentencing.)

Chicago tax lawyer Robert E. McKenzie worries those with still secret offshore accounts may be less likely to disclose because they figure that if they're found out and prosecuted, they'll avoid jail as Warner has. But McKenzie tells prospective clients the same thing he wrote recently on Forbes: "Many other less lucky offshore depositors have been sentenced to prison by other judges. One distinguishing factor for Warner was he was a billionaire whereas those sent to prison were merely millionaires." Indeed, Warner is the second member of the Forbes 400 to escape jail for hiding large sums offshore. California real estate billionaire Igor Olenicoff got two years probation in 2008 after he pleaded guilty to the felony of filing a false tax return and admitted hiding more than $200 million at UBS and other offshore banks. In a deal the Department of Justice later came to regret, prosecutors didn’t object to Olenicoff getting off with probation after he paid $52 million in back federal taxes, interest and civil fraud penalties.

Spokesmen for the U.S. Attorney in Chicago, the DOJ and Warner’s attorney all declined to comment on the prospect of a sentencing appeal or to confirm that Warner is T.W., the taxpayer who resisted turning over his bank records, although there is little doubt that he is. (Among other indications, Warner and T.W. were both issued subpoenas on Sep. 12, 2011 and have the same two attorneys of record--Gregory J. Scandaglia, the billionaire’s long time legal counsel, who hasn’t represented other taxpayers charged with offshore offenses and Mark M. Matthews, a former Deputy IRS Commissioner who is now a partner with Caplin & Drysdale in Washington and isn’t listed on any other offshore cases in Northern Illinois. In addition, the notice of a possible sentencing appeal the government filed in Warner’s case states that there was an earlier appeal in his case, although none is docketed under his name.)

After being turned down for the IRS program in October 2009, Warner authorized his attorneys to approach the government with more offers of disclosure---but only in return for amnesty. But they say he never heard back from the government until he was served with a grand jury subpoena for his foreign bank records. Warner resisted, arguing that he shouldn’t have to comply because the 5th Amendment protects an individual from being compelled to testify or produce records that incriminate him. The district court judge quashed the subpoena.

But the government argued, and a 7th Circuit three-judge appeals panel agreed, that Warner did have to comply with the subpoena under a 65-year-old Supreme Court ruling (Shapiro v. U.S.) holding that records which are required to be kept for a legitimate regulatory purpose don’t get 5th Amendment protection. Regulations the Treasury has issued under the Bank Secrecy Act of 1980 require U.S. taxpayers to maintain records of foreign accounts they have a financial interest in, including the names, numbers and maximum balance of each account, for five years and to keep them “at all times available for inspection as authorized by law.” The subpoena to Warner had specifically asked for thise records required to be maintained under the BSA.

After the 7th Circuit declined Warner’s request to have the full appeals court review his case, the grand jury reissued the subpoena and the government refused to delay enforcing it while Warner appealed to the Supreme Court. Rather than resist and be found in contempt, Warner complied with the subpoena in October 2012, but continued to bankroll an appeal to U.S. Supreme Court, with former Solicitor General Paul Clement as lead counsel. Warner’s lawyers argued that the need for the Supreme Court to step in was “acute” because prosecutors had demanded bank records in a string of offshore cases and appeals courts decisions upholding those demands threatened to “eviscerate” the 5th Amendment.

An amici curiae brief filed by white collar defense lawyers who previously worked for the DOJ or IRS, including Hochman and Olenicoff’s criminal defense attorney, Edward M. Robbins, Jr., described the grand jury bank record subpoenas as a “drastic departure” from previous prosecutorial practice which changed the criminal justice system “from an adversarial accusatorial system, where the government has to do the groundwork to investigate and prove a crime, to a system reminiscent of the Star Chamber, where evidence was obtained by forcing subjects of criminal investigations to testify against themselves.’’ Compelling the production of offshore bank records, they added, “creates a slippery slope that threatens to eliminate the Fifth Amendment protections not only in the context of investigation of offshore tax fraud, but also in the context of domestic personal banking activities and any other personal activities in which the federal government shows sufficient interest to require record-keeping.”

The DOJ, in urging the Supreme Court not to take the case, noted that the 5th, 7th, 9th and 11th circuits had considered the issue and all had ruled the same way, finding that foreign bank records required to be maintained under the BSA must be turned over, even if they are incriminating. Warner’s argument that the required records doctrine should only apply to open businesses and not a “private” decision to maintain a foreign bank account “would effectively exempt any black-marketeer from both the recordkeeping and the reporting requirements that apply to the rest of his regulated industry,’’ the government argued. DOJ also noted that the taxpayer had already complied with the subpoena, making the case an “unsuitable” one for considering the issue.

The Supreme Court, as is customary, offered no reason for refusing to hear Warner’s appeal.